Legal v. Factual Disability

Experienced disability litigators know the general rule that disability insurance provides coverage with respect to factual, rather than legal, disabilities. See generally, Couch on Insurance 3d § 146:9. The prototypical “legal disability” case involves a claimant who is physically able to perform the duties of his occupation, but is prevented from doing so by either incarceration or suspension/revocation of a professional license. Mass. Mutual Life Ins. Co. v. Millstein, 129 F.3d 688 (2d Cir. 1997); Wright v. Paul Revere Ins. Co., 291 F.Supp.2d 1104 (C.D. Cal. 2003). Conversely, where a sickness or injury disables a claimant, benefits may be payable notwithstanding the fact that the claimant subsequently becomes incarcerated, unlicensed, or otherwise precluded from performing his or her occupational duties. Weissman v. First UNUM Life Ins. Co., 44 F.Supp.2d 512 (S.D.N.Y. 1999) – benefits payable where the brain injury pre-dated the legal order barring claimant from working as a securities broker; P. Gary Stern M.D. v. Paul Revere Life Ins. Co. , 744 So.2d 1084 (FL 4th DCA 1999) – triable issue where onset of physical disability began before criminal proceedings.

An interesting issue that runs through these cases involves sicknesses or injuries which are allegedly disabling and which lead to legal incapacity. These cases generally involve one of two scenarios: either a progressive physical illness which precludes exposure to the public, or a mental disorder which results in criminal conduct. While the holdings in these cases tend to focus on the temporal relationship between the onset of the sickness or injury and the effective date of the legal disability, the better reasoned cases focus on whether the condition, aside from the legal disability, would in and of itself prevent the claimant from performing his or her occupational duties, and if so, at what point in time that occurred.

Let us consider the case of Dr. D, a practicing dentist. Dr. D has an “occupational” disability policy. In 2004, Dr. D was diagnosed as suffering from clinical depression, but with therapy and medication he is able to continue his dental practice. In 2008, a patient lodges a complaint with the State Dental Board regarding Dr. D, alleging that he engaged in improper conduct. In 2009, with charges pending, Dr. D discontinues his practice. Later in that year, the licensing board suspends Dr. D’s license to practice; the license is subsequently revoked. In 2010, after Dr. D’s license is revoked, he files a claim for disability benefits, alleging that his clinical depression advanced to the point where it became disabling as of 2009. Dr D also alleges that his depression was the cause of the conduct which led to the suspension of his license.

2. Selected Cases Supporting Finding of No Entitlement to Benefits

a. Zembko v. Northwestern Mutual Life Ins. Co., 2007 U.S. Dist. LEXIS 21677 (D. CT. 2007) – attorney held not entitled to benefits because inability to work caused by criminal conviction and suspended license; court dismissed argument that attorney’s depressive disorder (which allegedly led to her criminal conduct) was the cause of her disability, noting that she worked with the condition for many years and only stopped upon suspension (and later revocation) of her license.

b. Mass Mutual Life Ins. Co. v. Woodall, 304 F.Supp.2d 1364 (S.D. GA 2003) – disbarred attorney became depressed as a result of disbarment proceedings; benefits paid for a period under reservation of rights; held that no further benefits payable due to legal disability, but insurer could not recover benefits paid.

d. Massachusetts Mutual Life Ins. Co. v. Millstein, 129 F.3d 688 (2d Cir. 1997) – attorney held not entitled to benefits because inability to work caused by criminal conduct and suspended license; court dismissed argument that attorney’s drug addiction (which led to his criminal conduct) was the cause of his disability.

4. The Right Answer

The analysis in these cases often goes astray by focusing on the legal proceeding rather than the diagnosis, onset, progression of the sickness/injury, and the corroborating evidence thereof. In Dr. D’s case, the record as we have it establishes that Dr. D voluntarily stopped practicing in 2009. What is lacking is a contemporaneous certification to disability as of 2009; the attending physician’s statement accompanying the benefits claim in 2010 is afforded less weight because of the intervening legal disability. As such, the proper question is not whether Dr. D’s improper conduct was “caused by” his disability; that concept is misleading. For example, had the patient opted for a different response to Dr. D’s conduct (e.g., a punch in the nose), the legal disability might not have arisen when it did, notwithstanding Dr. D’s depressive disorder and its unfortunate side effects. It is equally likely that Dr. D may have engaged in improper conduct at a prior time during the course of his depression which simply went unreported. Instead, the correct question is whether there is competent, contemporaneous medical evidence supporting Dr. D’s claim that as of 2009 his depression had advanced to a point where he was no longer able to perform his occupational duties, without regard to the filing of the accusation. [For an excellent analysis of this issue, please see Massachusetts Mutual Life Ins. Co. v. Jefferson, 104 S.W.3d 13 (Tenn. Ct. App. 2002)] Since the burden of proof lies with the claimant, Dr. D should not be entitled to benefits unless he can make this showing. Otherwise, he is precluded from working by his legal disability, and he is not entitled to benefits.

2nd Circuit

Zembko v. Northwestern Mutual Life Ins. Co., 2007 U.S. Dist. LEXIS 21677 (D. CT. 2007) – attorney held not entitled to benefits because inability to work caused by criminal conviction and suspended license; court dismissed argument that attorney’s depressive disorder (which allegedly led to her criminal conduct) was the cause of her disability, noting that she worked with the condition for many years and only stopped upon suspension (and later revocation) of her license

Gassler v. Monarch Life Ins. Co., 714 N.Y.S.2d 126 (2000) – podiatrist’s license revoked for Medicaid fraud; denial of subsequent disability claim based on depression upheld based on finding that inability to work due to legal, not factual, disability

Weissman v. First UNUM Life Ins. Co., 44 F.Supp.2d 512 (S.D.N.Y. 1999) – benefits payable where the brain injury pre-dated the legal order barring claimant from working as a securities broker

Massachusetts Mutual Life Ins. Co. v. Millstein, 129 F.3d 688 (2d Cir. 1997) – attorney held not entitled to benefits because inability to work caused by criminal conduct and suspended license; Court dismissed argument that attorney’s drug addiction (which led to his criminal conduct) was the cause of his disability. Court also noted that “a rule which would allow a lawyer to steal from his clients, even when such theft occurs in the throes of a drug addiction, and then recover disability benefits for income lost due to suspension resulting from such theft, would be against public policy.”

Paul Revere Life Ins. Co. v. Bavaro, 957 F.Supp. 444 (S.D.N.Y. 1997) – insurance broker began engaging in criminal conduct in April 1993; submits disability claim June 1994 alleging anxiety neurosis, stress disorder; broker licenses revoked 1994-5; held that a triable issue of fact existed as to when the psychological conditions became disabling, relying on case law holding that benefits payable where the factual disability pre-dates the legal disability
Massachusetts Mutual Life Ins. Co. v. Ouellette, 159 Vt. 187, 617 A.2d 132 (1992) – optometrist imprisoned for lewd and lascivious conduct with a minor held not entitled to disability benefits; inability to work caused by incarceration, not by sickness or disease (claimant alleged disability due to primary pedophilia; court held this condition was not “disabling” because claimant continued to practice until arrest)

3rd Circuit

Grayboyes v. General American Life Ins. Co., 1995 U.S. Dist. LEXIS 4233 (E.D. PA 1995), aff’d, 74 F.3d 1226 (3d Cir. 1995) – orthodontist arrested October 1990 charged with indecent conduct involving a minor; in November 1990 diagnosed as having frotteurism; closed orthodontic practice December 1990; filed disability claim May 1991, alleged 12/90 date of disability; dental license revoked July 1991; held that claimant had a sickness which was not disabling, therefore only legal disability prevented him from working

4th Circuit

Ohio Natl’ Life Ins. Co. v. Crampton, 1995 U.S. App. LEXIS 10523 (4th Cir. 1995) – insured arrested July 1992 and charged with sex crimes; files claim for benefits November 1992 alleging disability due to anxiety and depression; pleads guilty and incarcerated January 1993; policy interpreted such that incarceration does not cut of entitlement to benefits that arose prior to incarceration

5th Circuit

Berry v. Paul Revere Life Ins. Co., 21 So.3d 385 (2009) – physician began having drug addiction issues in 2001; license suspended 2003, revoked 2005; filed claim for benefits in 2003; benefits paid until 2005, on basis that physician was in recovery and no longer disabled. Court found triable issue of fact as to basis for license suspension/revocation, on the grounds that it could have resulted from physician’s drug use, negligent job performance, theft of medication, or a combination of the three. Key holding is that benefits are payable if the legal disability results from a physical injury or sickness, OR if the physical condition is disabling in and of itself

Massachusetts Mutual Life Ins. Co. v. Jefferson, 104 S.W.3d 13 (Tenn.Ct. App. 2002) – clinical psychologist whose license was revoked following a sexual affair with a patient alleged disability due to major depression; Court held that depression did not become disabling until after revocation of license, and other psychiatric conditions (dysthymia, narcissistic personality disorder) were long standing and did not prevent claimant from performing occupational duties

Doe v. Great West Life & Annuity Ins. Co., 2000 U.S. App. LEXIS 3673 (6th Cir. 2000) (unpub.) – dentist with hepatitis B and C held factually disabled in spite of regulation mandating patient disclosure and consent; Court held that medical condition precluded him from practicing dentistry as a practical matter

Solomon v. Royal Maccabees Life Ins. Co., 622 N.W.2d 101, 243 Mich. App.375 (2000) – physician claimed disability due to bipolar disorder; held not entitled to benefits because disorder did not prevent claimant from performing occupational duties until 1993, when he surrendered his medical license after being reported and sued for sexual misconduct with patients (note: misconduct occurred over period of years; came to light after physician stopped paying blackmail money to a former patient, who was the first to report him to the medical board)

Provident Life & Accident Ins. Co. v. Harris, 1997 U.S. Dist LEXIS 15752 (W.D. Mich. 1997) – podiatrist who admitted to defrauding Blue Cross/Blue Shield voluntarily surrendered his license; subsequently filed disability claim based on “emotional problems”; Court held that inability to work due to legal disability. In dicta, Court noted that “[i]t seems incongruous that a defendant who gives up his livelihood as part of a plea agreement and encourages a federal court to accept the Plea Agreement because he is losing income can, in effect, pass on this financial aspect of punishment to his disability insurance provider.”

7th Circuit

Hammond v. Fidelity & Guaranty Life Ins. Co., 965 F.2d 428 (7th Cir. 1992) – insured fired for harassing employees, died a year later; beneficiary filed for life insurance benefits, alleging that insured totally disabled by narcissistic personality disorder at time of termination (and therefore still covered by life insurance policy); held no entitlement to benefits because aberrant disorder not totally disabling

Pierce v. Gardner, 388 F.2d 846 (7th Cir. 1967) (Social Security) – claimant applied for social security benefits, alleging mental impairment; court found that claimant not entitled to benefits because he was able to work except for periods of incarceration due to determination that claimant was a “sexually dangerous person” as defined under Illinois law

Zenk v. Paul Revere Life Ins. Co., 171 F.Supp.2d 929 (D. Minn.2000) – physician surrendered his license upon being investigated for chemical dependency; held not disabled, based upon claimant’s own testimony that he voluntarily surrendered his license

Goomar v. Centennial Life Ins. Co., 76 F.3d 1059 (9th Cir. 1996) – physician accused of improper conduct in 1984; license revoked 1987; submitted disability claim in 1992, alleging psychological disability (paranoid schizophrenia) dating back to 1982 caused improper conduct. Court held that evidence established that psychiatric problems began after, and caused by, license revocation; physician’s ability to practice before and after events leading to revocation demonstrated that he was not totally disabled

11th Circuit

Kocer v. New York Life Ins. Co., 340 F.Supp.2d 1351 (N.D. GA 2004) – physician whose license revoked in Arkansas in 1999 held not disabled by mental and physical conditions, notwithstanding valid licenses in Utah and Georgia: claimant was still living in Arkansas at the time of claim, and therefore legal disability preceded factual disability

Mass Mutual Life Ins. Co. v. Woodall, 304 F.Supp.2d 1364 (S.D. GA 2003) – disbarred attorney became depressed as a result of disbarment proceedings; benefits paid for a period under reservation of rights; held that no further benefits payable due to legal disability, but insurer could not recover benefits paid
Neiman v. Provident Life & Accident Ins. Co., 217 F.Supp.2d 1281 (S.D. FL 2002) – State Bar files complaint against attorney and State Attorney commences criminal proceedings in 1999; attorney enjoined from practicing law August 1999; attorney submits disability claim in 2000, alleging disabled from working as a paralegal by bi-polar disorder; held that attorney legally disabled from practicing law, and no benefits for “paralegal” work because working as a paralegal illegally